Pound Sterling Steadies Against Euro, Dollar but Analysts Warn of Further Downside

January 10, 2025 - Written by David Woodsmith

STORY LINK Pound Sterling Steadies Against Euro, Dollar but Analysts Warn of Further Downside

The Pound to Dollar (GBP/USD) and Pound to Euro (GBP/EUR) exchange rates slumped on Thursday as fears over the UK’s borrowing costs continued to undermine Sterling.

Pound Sterling weakened once again against most of its major counterparts, as concerns over rising UK borrowing costs continued to weigh on the British currency.

In the early hours of the day, the yield on the benchmark 10-year UK government bond climbed to its highest point since 2008, fueling worries about the nation's financial stability.

Michael Brown, a Senior Research Strategist at brokerage firm Pepperstone, said:

‘This dynamic, of yields moving higher, as the respective currency falls, is a classic sign of fiscal de-anchoring taking place, and of participants losing confidence in the Government in question’s ability to exert control over the fiscal backdrop. We’re not at the Truss/Kwarteng stage just yet, but things are clearly on very shaky ground indeed.’

As a result, Sterling faced significant pressure throughout the day, failing to attract buyers and struggling against nearly all of its major competitors.

On Thursday, the US Dollar (USD) gained ground against several of its major peers, benefiting from the FOMC meeting minutes released on Wednesday evening and Thursday’s cautious market sentiment.

The Federal Reserve's latest meeting minutes reinforced the central bank's intention to slow the pace of its easing cycle this year, which provided a slight boost to USD, carrying through into Thursday's European trading session.

Additionally, the risk-off market mood on Thursday contributed to the USD's modest gains, as investors sought the safety of the US Dollar amid negative trading conditions.

Looking ahead, the main driver of movement for the Pound US Dollar (GBPUSD) exchange rate on Friday will likely be several high impact data releases from the US.

America is set to release its latest non-farm payrolls data and unemployment rate for December.

With the country's non-farm payrolls forecast to show a sharp decline at the end of last year, the USD could face significant headwinds as a result.

Moreover, the US unemployment rate for December is expected to remain unchanged, which could further pressure the 'Greenback' as the week comes to a close.

For the Pound, Sterling is likely to remain under pressure as it enters Friday's trading session, particularly if market concerns over the UK's financial situation continue to persist.

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TAGS: Pound Sterling Forecasts